Question 1 [2|] marks] A steel rm produces 1 ton of pollution for every 1,DEID tons of steel it produces. The marginal cost of production is 3 dollars per ton of steel. The market price is 1D dollars per ton of steel. Each ton of pollution that the steel firm ushes into the river cost 5,DEID dollars in clean up costs for the government. {a} [5 marks} What is the private marginal cost of the steel firm? How will the steel firm set production levels for steel, assuming it incurs no liability for its pollution? In your answer carefully explain what assumptions you are making. lb} [5 marks} What is the social marginal cost of the steel firm? How will the steel firm set production levels for steel, assuming it incurs liability for its pollution? In your answer carefully explain what assumptions you are making. lfthe firm can build and operate a purification plant for an additional 1 dollar a ton of steel produced, will the rm build this plant. Why or why not? Fully explain your answer. [c] [5 marks} What remedies and strategies are available to the government to motivate the steel rm to build the purification plant? What are the advantages and disadvantages of each remedy or strategy available to the government? lfthe steel rm and government come to an agreement concerning the pollution, what would that contract look like? Fully explain your answer. {d} [5 marks} If transactions costs {legal fees} make it too expensive for the steel firm to negotiate with the government, what will the steel rm do? Fully explain your